Dubai Stocks Disconnect From Emerging Peers on Tourism Blows

(Bloomberg) -- Dubai stocks are more out of step with their emerging-market peers than they've been in more than two years, reflecting the battering for tourism and retail shares in the Gulf city caused by the coronavirus.

A measure of correlation between the DFM General Index and the MSCI Emerging Markets Index has dropped to the lowest since September 2018. The indexes followed a similar trajectory as the pandemic spread last year, but Dubai has fallen behind a broad recovery for shares in developing countries as its economy was ravaged by the absence of holidaymakers and shoppers.

Dubai stocks picked up steam in late 2020 as optimism around vaccines prompted a push to attract visitors from countries enduring lockdowns for the New Year holiday. Some of the biggest laggards in the real estate and retail sectors, such as Emaar Properties PJSC and its units, reacted positively to the improved scenario, according to Emre Akcakmak, a portfolio adviser at East Capital in Dubai.

Dubai's hotel occupancy, for years among the highest in the world, slumped as low as 23% in 2020 from about 80%. It climbed back to 71% in December, according to research firm STR, citing preliminary data.

The upbeat tone didn't last. As 2021 started, new cases in the United Arab Emirates surged to record levels, a travel corridor with the U.K. was closed and restrictions returned, including curbs on live performances and entertainment and the shutting of bars. Dubai's benchmark index fell the most among Gulf markets on Jan. 31 following new virus measures, echoing trading patterns seen in other sessions last month.

The DFM General Index fell 0.5% as of 11:51 a.m. local time, while the MSCI Emerging Markets Index rose 0.5%.

The disconnect between stocks in the emirate and other emerging markets could continue as equities in countries like China, India and Brazil stand to benefit this year from a weaker dollar, while the UAE's dirham is pegged, said Vijay Valecha, chief investment officer at Century Financial Consultancy. Still, Dubai shares remain “a strong proxy for investors looking to play on the global economy's reopening,” he said.

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